Property Markets / Outlook

Australian lending restrictions affect affordability

Property Markets / Outlook

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As Australia’s housing affordability crisis worsens despite failed government measures to address the issue, experts across the property and finance industries are warning that unless relaxed, these regulatory measures will cripple the property market and render the great Australian dream even farther out of reach for every day consumers.

Improving housing affordability has been a focus for state and federal governments in the past 12 months, however experts are warning that pace and severity of these numerous interventions has had unintended consequences, and now the very people the governments were trying to assist into the market are unable to access the credit required to do so.

Since the Australian Prudential Regulation Authority (APRA) moved last year to tighten bank lending for home buyers, would-be purchasers are finding it increasingly difficult to access credit, resulting in a stagnant market and a significant drop in sales.

Australian Bureau of Statistics data released this month reveals investor lending has dropped 16.1 per cent in the 12 months to March 2018, while loans written to owner occupiers fell 2.2 per cent, outpacing the 1.5 per cent decline expected by the market.

With even tighter lending restrictions introduced by banks in April this year, there are serious concerns about what this could mean for Australia’s property market.
It’s not just buyers struggling to secure credit; the big four banks have also restricted lending to property developers, despite fears Australia’s housing supply will be unable to keep up with its booming population.

Sources across both the property and finance sectors agree the solution needs to be a staged approach, led by the state and federal governments and encompassing industry regulators and industry leaders.

Leonard Teplin, director, Marshall White Projects:

“ When applied in theory, the regulations make sense, but it’s the lack of planning and the timing of all these changes in one hit that has resulted in a case of ‘too much, too soon’. What needed to happen was a steady, measured approach to introducing new regulations where each outcome could be evaluated over time, to ensure the pendulum didn’t swing too far in the other direction.

“ The government and APRA had good intentions when they tightened lending and restricted investment loans, however no investors means less rental supply, which pushes rents up, making it even harder for people to try to save up their first deposit.

“ If APRA doesn’t loosen its control on the banks soon, we will be in the midst of a credit lockdown with grim consequences for housing supply and affordability.
“ Despite Australia’s economy being better than it’s ever been, the banks are behaving like we are in a recession; if they keep it up we will be, and it will be the recession we didn’t have to have.”

Gil Norwood, senior director of real estate finance, Qualitas:

“ What we are seeing is government intervention in a previously deregulated and private market, which was always going to have negative consequences. While the aim was to assist a certain sector of the market (first home buyers) by constraining credit growth to investors and applying additional levies on FIRB purchasers in a bid to improve affordability, it has actually had the opposite effect.

“ An example of this is when the Victorian government announced that stamp duty would apply to all off the plan purchases from 1st July 2017, however an exemption was offered to First Home buyers for all properties under $600,000. Almost immediately we saw prices for homes in this segment of the market increase, which creates unnecessary distortions in market values. Homes that were $550,000 became $600,000 almost overnight, given first home buyers have “more money” in their pockets to spend.

“ By implementing measures that discourage investors from investing in the market, the government has also effectively decreased the amount of rental supply available, pushing the already high cost of renting up even further and preventing many people from being able to save enough money to enter the market.

“ At this rate, buyer activity will continue to remain subdued as it becomes almost impossible for Australians to pay exorbitant rent and save up for a house deposit at the same time.

“ The various levels of government need to work better together and engage with industry groups to implement a planning framework that encourages consistent housing supply growth – that’s the solution to improving affordability and providing options to buyers and investors. Continued intervention and swift changes leads to uncertainty and lowers confidence to invest in long term assets”

“ Developers should be incentivised by the government to deliver affordable housing and more flexible living arrangements via an offset to existing local and state levies , which would result in better outcomes for the market and keep price growth at an equilibrium.”

David Steele, state manager, Metro Property:

“ Credit has been harder to obtain for both developers and buyers, a two-fold problem that will no doubt see residential prices surge and buyers struggle to move in the market.

“ I understand the reasons for the APRA interventions, however the changes have gone too far and produced unintended consequences that will see our economy and our housing market head even further in a damaging direction.

“ There are feasible, measurable solutions that can be put in place, without APRA hanging over the banks and forcing us into a credit lockdown.

“ Converting stamp duty into a broader based tax that is paid over time, rather than as a lump sum at the time of settlement, would remove a significant obstacle for buyers of all demographics and give them more capital to spend.”

Damien Roylance, director, Entourage Finance:

“ A credit crisis is described as a sudden reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan. That is certainly what we are facing in Australia right now with the regulatory tightening from APRA.”

“ It is significantly harder to get funds at the moment with changes to investor loans, interest-only loans and servicing restrictions, and the effects are starting to show with the auction clearance rates.”

“ A huge sector of the home buyer market is those over 50, and they are the ones facing further restrictions when it comes to securing a home loan. Given the standard loan term in Australia is 30 years, most banks will require a detailed exit strategy as they factor in your ability to work past 70 years of age.”

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